公司理财assignment 2

Assignment 2
Due date: 14 Nov. 2011 (Monday)
This assignment is to be completed independently by each student. Please write legibly and show all the steps. Please put your student ID, official name on your work to submit.
1.You recently filed suit against a company. Today, you received three settlement options as
follows:
Option A: $10,000 on the first day of each year for 25 years
Option B: $900 on the first day of each month for 25 years
Option C: $119,830 as a lump sum payment today
You can earn 7.5 percent on your investments. You do not care if you personally receive the funds or if they are paid to your heirs should you die within the next 25 years. Which option do you prefer?
2.Your insurance agent is trying to sell you an annuity that costs $100,000 today. By buying this
annuity, your agent promises that you will receive payments of $384.40 a month for the next
40 years. What is the rate of return on this investment?
3.You should like to establish a trust fund that will provide $50,000 a year forever for your heirs.
The trust fund is going to be invested very conservatively so the expected rate of return is only 2.75% percent. How much money must you deposit today to fund this gift for your heirs?
4.Today, you are retiring. You have a total of $413,926 in your retirement savings and have the
funds invested such that you expect to earn an average of 3 percent, compounded monthly, on this money throughout your retirement years. You want to withdraw $2,500 at the beginning of every month, starting today. How long will it be until you run out of money?
5.Party time, Inc. has a 6 percent coupon bond that matures in 11 years. The bond pays
interest semiannually. What is the market price of a $1,000 face value bond if the yield to maturity is 12.9 percent?
6. A 12-year, 5 percent coupon bond pays interest annually. The bond has a face value of $1,000.
What is the percentage change in the price of this bond if the market yield rises to 6 percent from the current yield of 4.5 percent?
7.The bonds issued by Jensen & Son bear a 6 percent coupon, payable semiannually. The bond
matures in 8 years and has a $1,000 face value. Currently, the bond sells at par. What is the yield to maturity?
8.Disney coupon bonds are currently selling for $1,040 and the par value is %1,000. These
bonds mature in five years, pay semi-annual coupon and have a yield-to-maturity of 7%.
What is the annual coupon rate?
9.How much are you willing to pay for one share of stock if the company just paid a $0.80
annual dividend, the dividends increase by 4 percent annually and you require an 8 percent rate of return?
10.Martha’s Vineyard recently paid a $3.60 annual dividend on their common stock. This
dividend increases at an average rate of 3.5 percent per year. The stock is currently selling for $62.10 a share. What is the implied market rate of return?。